It’s worth understanding why redundancies are a natural consequence for an independent studio when they finish a project.
Firstly, it’s important to understand that the end of the project is always the point when the team is the largest, QA come onboard, people are generally added to get the project delivered to a high enough quality.
So, what happens when the project ships? What do all of these people do? As much as we’d like to believe that 100% of the team have meaningful work, it’s not going to be the case.
With the best will in the world a studio will plan follow-on revenue generating work but it’s incredibly rare that this work magically dove-tails into utilising 100% of the available team, or even a reasonable chunk of the team. Support work, patching and concepting future projects may all soak up some people but all of this work is still supported by the revenue of the game that’s now shipped and the cash flow has likely stopped.
It’s quite common for studios to work for payments that are milestone based and low margin so they can remain competitively priced and also pay the wages but this money stops at the point of delivery. Some games are developed against an advance for royalties that usually means the game was developed for almost no profit on the basis of a big upside should the royalties kick in.
Publishers are generally not interested in paying for your team to idle around between projects, they want to pay for the work only and even then it needs to be competitively priced.
The danger is obviously the low and frequently negative profit margins during development that don’t provide a buffer to get the studio through the gaps between work.
Imagine you’ve made a generous 15% net profit over the life of the project and you haven’t spent any of this money on other things and it’s just sitting in the bank. The obvious extension to this is that if nothing changes you can remain open for 15% of the projects duration before your cash runs out and you’re bankrupt. So, if you’re project took 9 months to make, you’ve got enough money to fund you through a gap of 1 month. Using this example, if the team is reduced to 25% of its size then the money will last 4 times longer for those that are still resident.
In reality, it’s not that straight forward because there’s a lot of other factors coming into play and you’ve now got a big team in place and a lot of mouths to feed so you’re commitment is high. No business operates in this way and net profit doesn’t go into the bank for a rainy day. It’s typically used to fund other opportunities to expand the business such as paying for over promising / under delivering, concepting, attending conferences, preparing pitches, R&D and a load of other things. Making people redundant also costs money too so it’s not something a business can enter into lightly.
So, the natural conclusion is that a studio can’t operate by employing 100% of the team 100% of the time and support that entire infrastructure when there’s little or no money coming in. It’s simply not going to work.
The only sustainable way for single project independent studios to keep this going is to operate on a Core+Contract basis where everyone involved works on the understanding that the Core is a small set of people that are central to the business and it’s buffered up with Contract / Outsource work that is clearly only commissioned when it’s needed. In this way everyone knows what their commitment is and there’s fewer surprises. The non-Core people are typically more expensive than permanent *but* it ultimately works out to be more cost effective once you factor in the recruit/redundancy/gap costs. The team shrinks back to the Core in between projects.
Sensible studios plan for all of these things and build their business with this in mind and also build in some contingency into their costs to enable them to burn some of their profits to keep a consistent team running during the lean times. Larger studios can also mitigate this by having multiple projects and moving people between projects as the natural ebb and flow of project demands occur.
If you’re a work-for-hire/self-funded studio working for little profit who employs 100% of your staff on a permanent basis then expect redundancies at the end of every project and or the business completely failing.
As the saying goes: Failing to Plan is Planning to Fail.
As a business owner, think about this when you’re starting out as it can make a real difference to the viability of your business.
As a developer, look at the business you’re working in for the signs of whether or not your likely to be around when the project finishes.
